Keeping CEPIP

California’s ethanol producers successfully rally to defend incentives
By Kris Bevill | June 13, 2011

The handful of corn ethanol producers operating in California weathered stiff policy attacks when state legislators recently considered making them ineligible for any state funding. Two state committees also reviewed the state’s ethanol producer incentive program (CEPIP) after legislation was introduced to revoke the program. The measure passed the first committee but was solidly defeated by the transportation committee on May 2, retaining the program and corn ethanol producers’ right to apply for any applicable state funding opportunities.

CEPIP, which came into effect in January, is a unique program in a few ways. It is based on ethanol crush spreads, rather than oil prices or other more commonly known triggers. It also requires producers to repay most of the incentives during times of good margins. Qualifying producers are able to receive up to 25 cents per gallon of ethanol produced, capping at $3 million annually per facility, during months when the ethanol crush spread is less than 55 cents per gallon. During months when the spread it more than $1 per gallon, producers are required to repay money received at a rate up to 20 cents per gallon. The program also requires producers to invest in technologies to transition their facilities away from corn in favor of nonfood, lower-carbon feedstocks.

Pacific Ethanol Inc., Calgren Renewable Fuels LLC and AE Biofuels Inc. are the only producers in the state who qualify to participate in the program and all three actively protested the proposal to revoke CEPIP. Representatives from the ethanol companies, as well as construction and electrical groups, testified at hearings in defense of the program. They pointed out the necessity of corn ethanol production as a bridge to the commercialization of cellulosic biofuels and said that without assistance, a transition will not occur and the state would run the risk of losing its existing ethanol production. They faced off against the state’s dairy and livestock producers, as well as environmental groups, who claimed that corn ethanol is damaging to the environment and devastating to the livestock industry. Ultimately, it was the prospect of jobs that won the support of legislators. Following the bill’s defeat, Tom Kohler, policy advisor for Pacific Ethanol, commended the state for confirming its support of the growing industry. “These plants are job creation machines and the CEPIP program is directly responsible for stimulating innovation and jobs,” he said.

While CEPIP may be viewed as an effective program for California, Geoff Cooper, vice president of research and analysis at the Renewable Fuels Association, says it would not be a popular proposal at the federal level because basing incentives on the crush margin essentially guarantees a profit margin for producers. It would also be an exorbitantly expensive program to implement in Corn Belt states.
—Kris Bevill